Renting a House in Foreclosure or Bankruptcy

If someone renting a property suspects the house they are renting is involved in a foreclosure or bankruptcy, they need to find out as quickly as possible if this is true and which legal procedure it is involved in. The bank and the courts will treat occupants of a property differently in foreclosure and bankruptcy situations; planning for moving out or getting any money through a cash for keys deal is impossible if the tenants do not know what is the status of the property. The status can be found out through asking the landlord or, if the owners are not responsive, by calling the local district or bankruptcy court and request a search of their records.

In a foreclosure, the bank will attempt to sue the owners of the house and take possession of the property by having the local government auction the property to satisfy the defaulted mortgage loan. The bank is usually the buyer of foreclosed houses at county sheriff sales, so once it has become the owner, it will attempt to evict anyone still living in the foreclosed home. In order to facilitate a peaceful transfer of the property, the bank may offer any lingering occupants a cash for keys deal, but not all banks do this -- tenants may want to call and find out what the lender can offer in the way of money to move out.

But a house in bankruptcy proceedings is completely different. If the homeowners filed bankruptcy because they were behind on the mortgage, it means they are seeking protection in the courts to get a chance to repay the defaulted portion of the loan and get back on track. The foreclosure process is completely on hold at this point, and there is no danger of either the tenants of the original owners of having the house auctioned off, being evicted by the bank, or being offered a cash for keys deal. None of these actions may be taken if the mortgage is involved in a Chapter 13 bankruptcy.

Unless the homeowners fall behind on the bankruptcy payment plan, the mortgage company can not move forward with any aspect of their foreclosure lawsuit against the owners. Bankruptcy grants homeowners relief from any collection efforts, including foreclosure, for as long as their debts are tied up in court under the Chapter 13. If they manage to make it all the way through the payment plan, then they are out of bankruptcy and foreclosure. Tenants have to keep paying rent to stay in the property, since the original owners still have legal title.

So people renting a house who suspect their landlords have fallen behind in the mortgage have to find out if the house is involved in either foreclosure or bankruptcy proceedings to know what will happen next. A property can not be in both situations at once, since filing bankruptcy will immediately stop foreclosure and put a hold on the sheriff sale. Either the renters may be in danger of eviction but can ask for a cash for keys deal, or they have to keep paying rent to the owners in order to keep living in the house, regardless of any bankruptcy proceedings.